name and mailing address of each acquiring and acquired person, whether or not re-
quired to file the Notification. Item 3(b) speaks to the assets to be acquired and the
assets held by the acquiring person. Item 3(c) addresses the specifics of a voting stock
acquisition, including the dollar value of securities in each class. Item 3(d) requires
the preparer to include a copy of the acquisition contract or agreement, or an intent
to merge or acquire.
(iv) Specific Items Relied Upon and Filed. Item 4 requires just three types of items:
documents filed with the SEC, annual financial reports, and “studies, surveys, analy-
ses, and reports.” This third group within item 4 should be specifically of interest to
the international examiner seeking to review transfer pricing transactions and by the
transfer pricing economist. The instructions to item 4(c) speak of the following cate-
gories of economic documentation, all of which will be relevant to Section 482 trans-
fer pricing:
- Market shares
- Competition
- Competitors
- Markets
- Potential for sales growth
- Expansion into product or geographic markets
The information concerning competition should be relevant to an international ex-
aminer seeking to set up an adjustment based on the comparable profits method. All
too often, some international examiners seek the course of least resistance and reach
too quickly to the SIC manual, relying on the taxpayer’s representation of its primary
SIC code. The list of competitors in 4(c) is likely to be far more relevant.
The acquiror will most frequently prepare such economic documentation to justify
and support the acquisition. The acquiror prepares the Notification and Report Form
with a view toward obtaining a preclearance “all clear” from the FTC and DOJ. In
this regard, the acquiror is likely to emphasize the heavy competition on the part of
the business’s competitors, the strength of these competitors, and the limited market
share even after the acquisition takes place.
Such a study is likely to reflect market intangibles, the impact of intellectual prop-
erty such as patents, trademarks, and the like. The studies may reflect intended
economies of scale and an “efficiency” argument. All of this information will be of
great interest to the international examiner and to the transfer pricing economist.
(v) Detailed Information Reflecting the North American Industry Classification System
(NAICS)—United States, 1997. At the present time, taxpayers and the IRS rely on the
CPM to compute the most easily determined transfer pricing method, though not nec-
essarily the best method. The CPM relies heavily on the SIC system, but the NAICS
system is to ultimately replace the SIC system.
Item 5(a) requests dollar revenues by industry. This information is to be reflected
by use of the six-digit NAICS industry code. Item 5(b)(i) requests dollar revenues by
manufactured products. This information is to be reflected by the use of the ten-digit
NAICS code.
Both the industry data and the manufacturing products data refer to 1997 total dol-
29 • 36 TRANSFER PRICING FOR INTERCOMPANY TRANSACTIONS